Foreign Investment - A Future Banana Peel For English Football?

In June it emerged that Tottenham Hotspur may become the

ninth English Premier League club to come under foreign

ownership, after it was revealed that a Dubai-based Middle East

syndicate was ready to pursue the club in a £250m-plus

bid.

The media spotlight surrounding takeovers of English clubs

has exposed a worrying aspect, in that the future financial

stability of many of these clubs has been potentially

jeopardised by the debts taken on in order to finance these

takeovers. From a legal standpoint, this raises a rather

interesting predicament for directors on the board of a target

company, in the sense that they must decide, when approached

with a takeover offer, what is in the best interests of the

company.

In making this decision, the board must, where the company

is a public limited company, heed the Takeover Code, as well as

observe its duties under common law (as now enshrined in

statute, as discussed below).

Rules 3.1 and 25.1 of the Takeover Code, when read jointly,

effectively state that the board must obtain competent

independent advice on any offer and the substance of this

advice must be made known to its shareholders. Additionally,

the company must circulate to the company's shareholders

its own opinion on the offer. In light of these rules, the

independent advisor and the company's board itself would

need to think carefully before supporting a proposed takeover

which is substantially financed by loaned capital, as this

could well be regarded as being contrary in many respects to

the best interests of the company. This position somewhat

reflects the common law duty which a company's board is

under irrespective of whether it is a public limited company.

This duty requires the board to act in the best interests of

the company by (when assessing the proposed offer) taking into

account both existing and future shareholders, and therefore

the short and long term interests of the company. Moreover,

varying classes of the shareholders must be treated fairly, and

the interests of creditors and employees must be

considered.

Recently, Liverpool FC were taken over by American duo Tom

Hicks and George Gillett. The £218.9m takeover was

financed by approximately £185m in loans. This echoes the

American Malcolm Glazer's 2005 £725m takeover of

Manchester United PLC, which has left the club apparently owing

£660m to the bank. It may appear to the outside observer

that, in practice, the highest offering price prevails over the

common law duty...